Angara Bello Concepcion Regala & Cruz Law Offices

April 18, 1988 Angara Bello Concepcion Regala & Cruz Law Offices 5th Floor, ACCRA Building 122 Gamboa St.,Legaspi Village Makati, Metro Manila Gentlemen : This refers to your letter, dated April 14, 1988, requesting the confirmation of this Commission that the term "new issues of shares of stock" within the context of the Corporation Code can be construed to include any of the following: a) Original issue(s) to the incorporators/subscribers of a new corporation taken from the original authorized capital stock; b) Shares issued from the balance (unissued) of an existing authorized capital stock; and c) shares issued out of an increase in capital stock. As defined by lexicographers, "to issue" means "to send out, or put in circulation" (11 Fletcher Cyc. Corp.,1986 rev. vol.,sec. 5159, at 310).There are several modes by which a corporation may issue or put into circulation new stock, namely: 1. Subscription for shares. Stock may be issued by subscription before or during incorporation proceedings and organization. (Fletcher, supra.,sec. 5155, at 292), 2. After a corporation has been formed, it may sell its unissued stock for money, or in exchange for property/labor or services, or in payment of a previously contracted debt. (Ibid); 3. Issuance of new shares pursuant to increase of capital. (Fletcher, sec. 5203).After formation of the corporation and all the original authorized capital stock has been issued, the corporation may increase the amount of its stock and either offer the new stock for subscription or sell the same in consideration of cash, property, labor or services, or issue it in payment of a previously contracted debt. (Fletcher, sec. 5155, at 293); 4. Another method by which a corporation may issue new stock is by making a dividend declaration. If the corporation has in reserve stock which it can lawfully issue, or if it is authorized to increase its capital stock, it may, subject to certain limitations, pay dividend by issuing additional stock. (Ibid)."The effect of stock dividend is to capitalize earned or other surplus according to the required amount of capital to be represented by the new issue of shares. This capitalization of surplus is regarded as the payment for the new shares which are issued by way of a dividend".(Fletcher, Supra.,sec. 5362.1 at 877). In the light of the foregoing, the Commission confirms the correctness of your view that the term "new issues of stock" from the stand point of the Corporation Code can be construed to include any of the modes presented in your basic letter. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman